U.S. secretary of state pick shouldn't affect Keystone XL

CALGARY, Alberta Mon Dec 17, 2012 7:13pm EST

CALGARY, Alberta (Reuters) - The prospect of a new U.S. secretary of state favoring tougher carbon policy should not worsen the odds of the Keystone XL oil pipeline being approved, the chief executive of TransCanada Corp (TRP.TO), the contentious project's proponent, said on Monday.

TransCanada CEO Russ Girling also said that recent deep discounts on Canadian heavy crude and a boom in shipping oil by rail show that the country's export pipeline network is close to being filled up, highlighting the need for more capacity.

There is a possibility the U.S. State Department will have a new secretary before the department's deadline of the end of March for a issuing a decision on the project. Democratic Senator John Kerry, who has long supported taking more action to cut greenhouse gas emissions, is widely expected to be the nominee to replace Hillary Clinton.

Girling said that should not matter, as the department's previous studies on the project have concluded there will be little impact on North American greenhouse gas emissions if Keystone XL is built because Canadian oil sands production will increase regardless.

The bigger question facing the State Department, which will rule on the $5.3 billion pipeline to southern refining markets because it would cross the Canada-United States border, is where the country wants to source its crude imports -- its oil-rich neighbor to the north or other less-friendly producers, Girling told Reuters in an interview.

"I think anybody in that position will look at those facts objectively and come to the conclusion that the national interest of the United States is best served by the approval of the Keystone pipeline, and stringent oversight, obviously, on pipeline safety, which they do in the United States today," Girling said.

Environmentalists opposed to the project have complained that a new environmental impact study does not adequately address climate change. They have also been alarmed by a rash of pipeline breaks on other operators' systems in 2012.

U.S. President Barack Obama rejected Keystone XL last year, saying that it needed to be rerouted around Nebraska's environmentally sensitive Sand Hills. Since then, TransCanada split the project in two and began building the $2.3 billion segment between Cushing, Oklahoma, and Texas refineries.

It also reapplied to build the northern section. The State Department is conducting its review as Nebraska assesses a new route. Nebraska Governor Dave Heineman could rule early in the new year.

Girling said Canada's crude oil should be viewed as preferable to other foreign crude even as United States keeps developing its own fast-growing supplies from regions such as the North Dakota Bakken and Eagle Ford in Texas. Keystone XL would also move Bakken supplies and reduce the need for more expensive and energy-intensive rail shipments, he said.

'FEELS LIKE' CAPACITY REACHED

Surging production in North Dakota and from Western Canada's tar sands have contributed to a clogged pipeline network from Western Canada. In the past week, the price of Canadian heavy crude slumped as shippers were unable to move supplies easily out of the region to the U.S. Midwest and elsewhere.

Western Canada Select, a widely quoted heavy crude, was quoted at more than $40 a barrel below benchmark U.S. light oil, or just 54 percent of the benchmark's value.

Girling said "it sure feels like" production has started to bump up against capacity to move the crude.

"At various times, if you have any interruption in the system right now, it causes those differentials to blow out, which means we're remarkably close to that constraint level," he said. "Whenever we see any disruption in the system, we're seeing oil shut in, being redirected, stored -- whatever you can to keep it moving to market. And we've seen a huge increase in rail movement as a result of that."

As one release valve, TransCanada has proposed a project to shift one of the pipelines on its natural gas mainline system to oil movement to move crude to refineries in Quebec, New Brunswick and points East that now buy pricier imported supplies. The line, which starts at the Alberta- Saskatchewan boundary, would compete with a similar initiative proposed by Enbridge.

Last month, the premiers of Alberta and Quebec agreed to study the benefits of such projects.

Girling said TransCanada's proposal could eventually move 1 million barrels a day of light synthetic oil from the oil sands to refineries in Montreal, Quebec City, Saint John and New Brunswick, and to export markets.

The pipeline could begin moving up to 400,000 barrels a day by 2017, he said, with expectations of a shorter regulatory process than the one TransCanada has faced with Keystone XL, for which it filed its application more than four years ago.

"One of the benefits is that 80 percent of the pipe's in the ground and it has been regulated for about 40 years," Girling said.

"So everything is known around its integrity, the landowners are known, the issues you have to start from scratch on a normal application -- a lot of that work's already done."

(Reporting by Jeffrey Jones; Editing by Dan Grebler)

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